Paying for Car Dealerships – The way to Do it Right


The financial qualities of the automobile dealership are usually attractive:

“…. moderate progress and risk and large returns. Franchised new automobile dealer revenues have grown at a 7. 2% annual level since 1992, about 2 times the rate of GDP. Additionally, this growth has had only moderate risk because the dealer body didn’t generate losses (on a pretax basis) for a single year within the last twenty – even through the 1989-1991 industry down-cycle. Ultimately, despite major changes in the automobile industry’s structure, dealer profits have remained high, together with pretax ROE averaging 21. 1% over the last twenty years”. [MerrillLynch, April nineteenth, 2004 Report on “Automobile Dealers.” ]

Athletes coming from almost every major sport have got invested in new car dealers: Rick Hendrick, Roger Penske, John Elway, Troy Aikman, Evander Holyfield, Arnold Palmer, Michael Jordan, Scottie Pippen, and also Alex Rodriguez, to name a few.

The theory isn’t new. Johnny Lujack, a 1947 Heisman Trophy success, and Chicago Bear Pro-Bower started a business in 1954 that would eventually expand to 16 franchises, spread over 45 acres, with sales regarding over 10 000 cars and $150 million annually. Lujack retired from the automobile business after almost 5 decades as a successful dealer.


“This is the moment you have been waiting for,” accounts Greg Gilmore in the July 2005 issue of Trader Magazine.

Dealer Executive claimed that last year (2004) graded as the 4th best for completely new unit sales by franchised new-vehicle dealers. Total car lot dollars exceeded $714 tera-, up more than 2% by 2003.

The fact is that every time is the right time. In 1991, in the depths of an automotive major depression, John Elway asked me, before signing his purchase commitment, if “this” (1991) was the right time to buy. I instructed him that how you obtain it and how you this count. That calendar year, he made a $20 zillion investment. At the time he had, there was a Mazda store on Arapahoe Road in Englewood. My partner and I sold the Mazda team for him, and Machine gave him its squad to put in the old Mazda making. Shortly after that, I prepared another transaction that acquired John buy the Mazda retailer on 104th Avenue with Thornton. John then finished Suzuki and put the Mazda store with his Oldsmobile in addition to Hyundai franchises. After that, he/she bought one more dealership (a Ford franchise) and then, in 1995, sold the entire offer to Republic Industries to get $86 million.

A lot of people ended up being afraid to buy a dealership two decades ago and thought that Bob had taken a big gamble. However, he didn’t “gamble.” He/she structured his purchases in addition to sales correctly and then made a fortune on his investment.

For example, while GM and Ford made bad decisions (as they did in 1991), individual dealers made enormous amounts; according to NADA (National Automotive Dealers Association) and Automobile News statistics, the average dealers’ pretax margin varies concerning one and two-per-cent of their total sales. Why? Often the dealers capture a more extensive business base than the supplier. While the manufacturer makes money on new car or truck sales, the dealers contain the additional balance of the pieces departments, service departments, car or truck departments, finance departments, insurance policy departments, and, sometimes, physique shops. Consequently, while the maker depends on each year’s new car sales, a dealer’s success is based more on the number of vehicles in operation.


Slightly, but don’t be intimidated by that. After Jimmy Vasser gained the CART racing tournament for Target, I gathered a transaction for Jimmy to buy a dueled Chevrolet-Toyota operation in Napa that suffered losses for the previous 10 progressive, gradual years. I put Jimmy together with a dealership manager, and Jimmy’s dad, who had several previous used car experiences, signed on as a used car manager.

Eventually, after going to dealer university and passing through the chair, Jimmy’s dad took above as General Manager; the shop thrived; Jimmy not merely bought the dealership terrain and facility but acquired the Ford store over the following town and is currently developing a new Toyota store so that his Chevrolet and Toyota franchises can have separate amenities.


Good advice. Helpful advice is both essential and also hard to find. In words connected with Trace Armstrong, past director of the NFL Players Connections: “There’s just so much undesirable advice out there being fond of these guys. It’s daunting. ” [Reported using Eric Fisher, March twenty-seventh, 2000. ]

As with often the Entertainment and Sports Companies, there is so much money in your car business that everybody wants to purchase a piece of it. Consequently, most people think he or she is an expert in analyzing and structuring specials, when in fact, they want to be a broker that obtains a commission from the cope.
Sidebar: New car dealership gross income reached almost One Trillion Dollars in 2004. The shops and dealer-related companies account for over 15% of the Gross National Solution of the United States.


An investor needs a workforce. Generally, it’s the same workforce they have, supplemented by an authority in the car business. Don’t get lulled into a false sense connected with security that loyalty is synonymous with the “factory” and “bankers.”

For example, Ford manufactured one of its black vendors (a superstar athlete) the man, brokering meetings having senior executives and working as a conduit between the corporation and Jesse Jackson. He/she mediated disputes between Trek through and its dealers, and he endorsed the company in public appearances. He/she even had a close partnership with some Ford family members.

“He had some friends inside high places, ” said David Clissold, a retired Kia Credit executive. “[The head of Ford Credit] was a powerful promoter. ” But, when difficulty came, it didn’t make a difference. The business was business. Inches… one factory executive familiar with the situation summed up the prevailing sense at corporate headquarters: ‘[the superstar] has been headed for a cliff and weren’t going over with the dog. ‘” [Story simply by Bill Vlasic and Indicate Truby / The Detroit News Sunday, May 21, 2002. ]

The factory and bank staff have a duty to do precisely what is best for the factory or lender, not for your current client. It’s the law. There is a legal obligation to their investors – no matter how nice or perhaps how close your consumer is to them.

Financial assertions and an accountant are not adequate. Your client needs a person in your team that is a pupil of the industry. A lucrative automotive statement can be accredited and comply with every accounting rule yet still include a false impression of success. There are numerous nuisances in defining and also structuring automotive transactions; your client needs an expert inside the field who can determine two what automotive deal is the most suitable for the athlete and what is the best way to get it.

So although your team may contain accountants, attorneys, agents, and also managers that are excellent in their jobs, unless students in the industry are included (someone who does nothing but construction buys and sells every day), a key ingredient to accomplishment will be missing.

Think of the item in terms of any sport or small business. If a person wants to build a championship team in a particular sport, is it created with folks who play the game 50% and the majority, 75% of the time, or one who plays it daily?

Remember: Often, the most incredible thing they ever previously said about Richard Nixon was: “He looks like a second-user car salesman. ”

Mr. Pico served as a judge-appointed “Consultant to Debtors” in bankruptcy cases, a newly “Court Appointed Mediator” in automotive disputes, the “Court Appointed Arbitrator / Appraiser” in partnership disputes, a recently “Court Approved Consultant to help Receiver” in a check-kiting scenario, as a “Superior Court Mediator” in dealership/lender litigation and has now been recognized as an expert observes on both State and Fed levels.

He has consulted with upside-down positions of through $50 Million, of confidence position of over $4 Million, and a bank overdraft of $30 Million. Due to the fact 1972, Mr. Pico’s features completed over 1 000 automobile dealership transactions, do you know combined values exceed Just one Billion Dollars? In 1986, he/she authored and National 100 % Legal Publishing Company published the country’s first book on Exchanging Automobile Dealerships. You can view his or her biography at

Joshua N. Pico, who both investigated and co-authored this article, is a graduate of Johns Hopkins University and has worked on both home-based and import dealership revenue.

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